Finance Bill (Fourth sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Wes Streeting]

In the case of clauses 28 and 29, I think we have to ask some questions about what the Government are trying to achieve, and some questions about the frequency with which they change the rules.

As the Chartered Institute of Taxation has said, taxpayers generally welcome any increase in a rate of relief, but as the institute has noted on many previous occasions, regular tinkering with rules and rates of capital allowances brings additional complexity and uncertainty; it also undermines investor understanding of and confidence in what is on offer at any one time. Most businesses cite certainty as one of the most important factors in their business planning, and as the institute has also said, it is perhaps more important than the precise amount of relief available.

When the SBA was introduced in 2018, it took an approach of introducing another type of asset classification required only for tax purposes—something that was previously identified by the Office of Tax Simplification in its review of capital allowances as a source of compliance costs. For most property investors, as there is a clawback on disposal of a structural building, the main benefit of the SBA is one of cash flow. As financial accounts will have to provide for a deferred tax liability, it is questionable how much this tax measure will act as a significant incentive to invest or will result in a significant impact on the UK’s competitive advantage. The Financial Secretary ought to address that criticism.

One of the other issues I wanted to raise is something that the Chartered Institute of Taxation has mentioned. Broadly, the changes—particularly in clause 29 and schedule 4—can be described as making the SBA work as it was intended to. It is a relatively new relief, having been introduced in October 2018, and the need for these corrections may reflect the fact that the relief was introduced as a done deal for immediate implementation, with no prior consultation. I am sure the Financial Secretary will say in defence—he can correct me if I am wrong—that the Treasury considers this important to deter businesses that were planning expenditure immediately after the 2018 Budget from deferring it until a later date of introduction, to avoid people taking full advantage too soon. It prompts the questions of why we have a system that apparently requires constant fine tuning, and of whether this is really working to the extent that Ministers intend and to the advantage of the businesses that are supposed to benefit from the relief, if they face additional compliance costs as a result.

I move on to new clause 10. I am in danger of repetition, which I appreciate is not a novelty in this place, but it is repetition that could easily have been avoided, were it not for the same issues that I raised this morning in relation to the “amendments to the law resolution” that successful Governments of different political stripes would have tabled to enable a more wide-ranging political debate in the interests of Parliament and, most importantly, of the wider public.

Ms McDonagh, as you were not chairing this morning’s proceedings, I think it is fair to say that the debate surrounding this Finance Bill, and the clauses that we are considering this afternoon and will consider into next week, is a little more dry and technical than perhaps any of us would have liked. There is a reason for that: it comes down to the fact that the Government are trying to restrict the ability of the Opposition, minor parties and dissenting Back Benchers to cause trouble. That would have been a little more understandable, if not noble, in previous Parliaments, when Governments operated under much tighter majorities or with no working majority at all. That is not to say that it was justified—the Opposition strongly argued against it in the past and would argue against Governments behaving in such a way in the future—but this Government have a significant majority. They do not need to worry about Back-Bench rebellions to the same extent as they once did, and none of us is well served by the Government failing to table the “amendments to the law resolution” alongside the Finance Bill, in order to allow the more wide-ranging political debate that our constituents would expect us to have.

Here we are with new clause 10, just as we were this morning, with an SNP amendment using the structures and buildings allowances review—I hope the hon. Member for Aberdeen South will not resent my characterising the new clause in this way—to shoehorn in some important wider considerations around what is happening to the UK economy on business investment, employment, productivity and energy efficiency, as outlined in the new clause, in a way that would not be necessary if Opposition parties or any hon. Members of the House were able to table amendments in the way we would have liked and our constituents would have expected. The Government would be richer for the scrutiny and would be forced to raise their game, and the Opposition parties would be encouraged to think more carefully about the changes that we propose to Government policy and would be under greater scrutiny to ensure that, where we oppose Government, we also suggest alternatives. Previously, we would have been able to demonstrate those alternatives more plainly by tabling amendments, but we are curtailed by the way the Government have gone about the process and procedure for amending this Bill. As a result, here we are, locked in Committee Room 14 on a moderately sunny afternoon, debating rather dry and technical details of the Bill, when our constituents, the Government and the process of government would have been better served by a more wide-ranging debate.

[Stephen Flynn (Aberdeen South) (SNP)]

I look forward to serving under your chairmanship, Ms McDonagh. Before I start, I want to touch quickly on the remarks that the hon. Member for Ilford North made about why the new clause was tabled. This is the only opportunity available to us to highlight the issues that we seek to promote. Of course, that is not a criticism, and I would certainly welcome seeing a few more new clauses from Labour Members. Indeed, there is opportunity for all of us to discuss what we seek to discuss, but the key thing is that we need to move something first.

On the matter at hand, amending the tax system in order to incentivise capital investment is a good thing—it is something that we should all want—but when we take such actions we also need to ensure that good governance is put in place. We must also look at the effectiveness of those actions, particularly when we are dealing with the potential impact on business investment, employment, productivity and energy efficiency.

I want to focus on energy efficiency, because it is so important in combatting the climate crisis that we all face. Words mean only so much, so we need action too. We all want to understand how Government measures incentivise energy efficiency, and we want to see further detail behind that, but we also want to see how the Government could go further. For instance, I wrote to the Government—I am not sure whether I got a response—about VAT on building repairs. I appreciate that in the south-east of England, the need for energy efficiency in properties is perhaps not as urgent as it is in the Baltic north-east of Scotland, where I hail from, but that is not to say that it is not a hugely significant issue.

Although we would like VAT to be reduced to encourage home owners, property developers and the like to improve the energy efficiency of older properties, that is not something that the Scottish Parliament can legislate on; the Scottish Government’s hands are tied by the UK Government in that regard. I hope the Minister will take the opportunity to clarify why there has been no move on that issue. We want properties to be more energy-efficient, and reducing VAT on the essential repairs that they require would be a logical, practical and easy step. It is deeply frustrating that such matters are not within the Scottish Parliament’s competence, and that we need to rely on a UK Government we did not vote for and do not support. So much good is happening in Scotland at the moment and the Scottish Government are doing incredible work, but their hands are tied. For instance, in December 2019, the Scottish Government’s Housing Minister, Kevin Stewart, highlighted that, by the end of 2021, we will have allocated more than £1 billion since 2009 to tackle fuel poverty and improve energy efficiency to make homes warmer and cheaper to heat.

In my former life as an elected councillor in Aberdeen, I saw at first hand the good work that housing associations and local authorities have done to improve insulation, use newer windows to stop energy leakage and put better heating systems into homes. Moves are afoot to increase our energy efficiency, and they are all positive.

In Scotland, we are blessed that we will have legally binding standards for home energy efficiency from 2024 onwards, which will make things even better. However, we should not have to rely on the UK Government’s approval to put in further measures. I again ask the Minister to clarify why the Government have been unable or unwilling to reduce VAT to date.

As I say, so much good is being done in Scotland to improve energy efficiency. It is only right that the UK Government agree to the new clause, in order to then assess their own actions and determine what more can be done to improve the situation, not only for those in Scotland but for those across the United Kingdom.

--- Later in debate ---

[Stephen Flynn]

I beg to move amendment 4, in clause 35, page 34, line 3, at end insert—

“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—

(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland;

(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland; and

(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”.

This clause would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 35 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.

The amendment is, hopefully, straightforward and one on which Members can agree. As things stand, as we all know, the enterprise investment scheme facilitates investment firms by offering a tax relief to individual investors of up to £5 million a year, and £12 million over a company’s lifetime. Scotland has an extremely strong financial services sector: a recent EY survey showed that we attract more foreign direct investment than any part of the UK outside London. Indeed, my own city of Aberdeen is well known for securing investment, and regularly battles ahead of cities of a far greater scale.

However, with little financial services power, we are unable to fulfil Scotland’s potential in respect of domestic venture capital. Venture capital in the UK is highly concentrated in the golden triangle—London, the south-east of England and the east of England—which received 73% of all venture capital between 2016 and 2018, according to the British Venture Capital Association. That disparity is also reflected in the EIS. Between 2015 and 2018, only 210 Welsh firms benefited from the EIS, receiving only 1.3% of the total investment. In contrast, the golden triangle received 67% of all investment, with the average UK angel investment per firm being 40% higher than in Wales.

We support Plaid Cymru’s attempts to get Westminster to own up to its failure to get investment into Wales. The amendment would force the UK Government to officially consider the unsustainable concentration of private investment in one region of the UK at the expense of all devolved nations. As the UK Government narrow the applicability of the EIS, they need to consider how that will affect the ability of firms in other areas of the UK economy; how EIS—a tax really funded by taxpayers—could benefit us all by addressing climate change; and how they can encourage the establishment of venture capital funds, and therefore private investment, in the devolved nations.

I will focus briefly on climate change once again. As I said, we cannot escape the climate crisis in front of us. If we have the opportunity to do more, and if we have the ability to leverage investment in a way that allows us to combat the climate crisis, that is surely something that we should all seek to achieve. With that, I bring my remarks to a close. I hope that Members will be minded to support the amendment.

[Bridget Phillipson]

We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.

The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.

We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.

I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.

The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.

The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.

In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.

Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.

The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.

I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.

--- Later in debate ---

[Stephen Flynn]

There are a few points that I think are incredibly important to pick up on. The first relates to the Minister’s remark that the EIS is and needs to be a neutral fund. It does not need to be a neutral fund; that is a choice. If we seek to combat climate change and put our words into action, we can make those decisions and make them now—the gift to do that is in the Minister’s hands. It is incredibly important that we focus on that point: that it does not have to be how it is at the moment.

I respect the commitment to review before 2024, but that is a significant time away. I am not overly comfortable with the idea that we can allow that time to pass before we assess whether the scheme is working as we feel it should.

[Jesse Norman]

May I say what a joy it is to have the boot on the other foot and to be able to intervene on another member of the Committee? Of course the hon. Gentleman is right that legislation can be changed, subject to the will of Parliament, but this measure cannot be changed without distorting its essential character. Its purpose is to implement a reform that addresses, and hopefully cures, a market anomaly.

To address the real and important wider concern that the hon. Gentleman raises, the real question is therefore whether there are other measures outside the EIS that could achieve some of the aims he describes. The EIS cures the anomaly, which is about investment—as we know, we cannot deduce effectively where the investment goes from where the head offices are—but there may be other measures that the Government can take, and that the Scottish Government may want to take, to address more widely the concerns that he describes.

[Stephen Flynn]

I look forward to the UK Government coming forward with such proposals; that would certainly be of much interest to me and to colleagues across the UK.

I want to home in on the climate situation in Aberdeen. It would be remiss of me not to highlight the fact that Aberdeen is the oil and gas capital of these islands, and indeed of Europe, and has been so for a significant time. However, we are extremely conscious of the situation in Aberdeen due to the oil and gas sector downturn—we heard earlier about the support that the UK Government put in place during the downturn, although I was not quite sure which downturn was being referred to since we are currently in the midst of perhaps the sharpest downturn of the North sea basin—but we are very cognisant that we need to make a sustainable transition to a net zero future.

If we look to the possibilities of the north-east of Scotland—hydrogen technologies, carbon storage, alternative fuel gas turbines, subsea and offshore energy—there is a wealth of opportunity. We are blessed with unbelievable natural resources in Scotland. If we can have a fund that channels money into exploiting such research and talent, we should be willing to do so.

Ultimately, amendment 4 is very clear: it is about

“analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme”.

We are talking about analysing the scheme and whether it is doing the job it should be doing. As I have said on a number of occasions, the Government should not be afraid of looking at whether their schemes are effective. We should all retain a firm commitment not just through our words but—I repeat—through our actions to combat the climate emergency and the amendment is one way in which we could do that.

[The Chair]

Mr Flynn, do you wish to press your amendment to a vote or to withdraw it?

[Stephen Flynn]

I will press the amendment.

Question put, That the amendment be made.